exv10w3






Exhibit 10.3




IXYS CORPORATION




2008 EQUITY INCENTIVE PLAN




(Effective May 20, 2008)




     IXYS CORPORATION hereby adopts in its entirety the IXYS Corporation 2008 Equity Incentive
(“Plan”), as of May 20, 2008 (“Plan Adoption Date”). Unless otherwise defined, terms with
initial capital letters are defined in Section 2 below.



SECTION 1

BACKGROUND AND PURPOSE



1.1 Background The Plan permits the grant of Nonqualified Stock Options, Incentive Stock
Options, Stock Appreciation Rights (SARs), Restricted Stock, and Performance Units.



1.2 Purpose of the Plan The Plan is intended to attract, motivate and retain the following
individuals: (a) employees of the Company or its Affiliates; (b) consultants who provide
significant services to the Company or its Affiliates and (c) directors of the Company or any of
its Affiliates who are employees of neither the Company nor any Affiliate. The Plan is also
designed to encourage stock ownership by such individuals, thereby aligning their interests with
those of the Company’s shareholder.




SECTION 2

DEFINITIONS




     The following words and phrases shall have the following meanings unless a different meaning
is plainly required by the context:


2.1 “1934 Act” means the Securities Exchange Act of 1934, as amended. Reference to a
specific section of the Act shall include such section, any valid rules or regulations promulgated
under such section, and any comparable provisions of any future legislation, rules or regulations
amending, supplementing or superseding any such section, rule or regulation.



2.2 “Administrator” means, collectively the Board, and/or one or more Committees, and/or
one or more executive officers of the Company designated by the Board to administer the Plan or
specific portions thereof; provided, however, that Awards to Non-Employee Directors may only be
administered by the Board as a whole but excluding any Employee Directors, and Awards to Section 16
Persons may only be administered by a committee of Independent Directors (as defined in Section
2.23). The Plan permits coextensive administrative authority; provided, however, that the scope of
any such authority is specifically approved by the Board in accordance with the Plan.



2.3 “Affiliate” means any corporation or any other entity (including, but not limited to,
Subsidiaries, partnerships and joint ventures) controlling, controlled by, or under common control
with the Company.




1









 




2.4 “Applicable Law” means the legal requirements relating to the administration of
Options, SARs, Restricted Stock, Performance Units and similar incentive plans under any applicable
laws, including but not limited to the laws of the United States and any applicable foreign
country, including employment, labor, privacy, securities, and tax laws, the Code, and applicable
rules and regulations promulgated by the Nasdaq, New York Stock Exchange, American Stock Exchange
or the requirements of any other stock exchange or quotation system upon which the Shares may then
be listed or quoted.



2.5 “Award” means, individually or collectively, a grant under the Plan of Nonqualified
Stock Options, Incentive Stock Options, SARs, Restricted Stock, and Performance Units.



2.6 “Award Agreement” means the written agreement setting forth the terms and provisions
applicable to each Award granted under the Plan, including the Grant Date.



2.7 “Board” or “Board of Directors” means the Board of Directors of the Company.



2.8 “Change in Control” means the occurrence of any of the following:




     2.8.1 Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company’s then outstanding voting capital stock, other than a group
of two or more persons not (A) acting in concert for the purpose of acquiring, holding or disposing
of such stock or (B) otherwise required to file any form or report with any governmental agency or
regulatory authority having jurisdiction over the Company which requires the reporting of any
change in control;



     2.8.2 The consummation of the sale or disposition by the Company of all or substantially all
of the Company’s assets (whether by stock sale, merger, consolidation or otherwise);



     2.8.3 The consummation of a liquidation or dissolution of the Company; or



     2.8.4 The consummation of a merger or consolidation of the Company with any other corporation,
other than (i) a merger or consolidation for the sole purpose of changing the Company’s
jurisdiction of incorporation or (ii) a consolidation or merger of the Company in which the holders
of the voting capital stock of the Company immediately prior to the consolidation or merger (other
than Persons who are parties to such consolidation or merger and their respective Affiliates) hold
at least fifty percent (50%) of the voting power represented by the Company’s then outstanding
voting capital stock of the Company or the surviving entity (or its parent entity) immediately
after the consolidation or merger.


2.9 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific
section of the Code or regulation thereunder shall include such section or regulation, any valid
regulation promulgated under such section, and any comparable provision of any future legislation
or regulation amending, supplementing or superseding such section or regulation.




 









 







2.10 “Committee” means any committee appointed by the Board of Directors to administer the
Plan.



2.11 “Company” means IXYS Corporation, or any successor thereto.



2.12 “Consultant” means any consultant, independent contractor or other person who provides
significant services to the Company or its Affiliates or any employee or Affiliate of any of the
foregoing, but who is neither an Employee nor a Director.



2.13 “Continuous Status” as an Employee, Consultant or Director means that a Participant’s
employment or service relationship with the Company or any Affiliate is not interrupted or
terminated. “Continuous Status” shall not be considered interrupted in the following
cases: (i) any leave of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company and any Subsidiary or successor. A leave of absence approved by the
Company shall include sick leave, military leave or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock Options, no leave of
absence may exceed ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If such reemployment is approved by the Company but not
guaranteed by statute or contract, then such employment will be considered terminated on the
ninety-first (91st) day of such leave and on such date any Incentive Stock Option held by the
Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonqualified Stock Option. In the event a Participant’s status changes among the
positions of Employee, Director and Consultant, the Participant’s Continuous Status as an Employee,
Director or Consultant shall be deemed to be continuous and uninterrupted..



2.14 “Director” means any individual who is a member of the Board of Directors of the
Company or an Affiliate of the Company.



2.15 “Disability” means a permanent and total disability within the meaning of Section
22(e)(3) of the Code, provided that in the case of Awards other than Incentive Stock Options, the
Administrator in its discretion may determine whether a permanent and total disability exists in
accordance with uniform and non-discriminatory standards adopted by the Administrator from time to
time.



2.16 “Employee” means any individual who is a common-law employee of the Company or of an
Affiliate.



2.17 “Exercise Price” means the price at which a Share may be purchased by a Participant
pursuant to the exercise of an Option, and the price used to determine the amount of cash or number
of Shares payable to a Participant upon the exercise of a SAR.



2.18 “Fair Market Value” means, as of any date, provided the Common Stock is listed on an
established stock exchange or a national market system, including without limitation the NASDAQ,
the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock on
the Grant Date of the Award. If no sales were reported on such Grant Date of the Award, the Fair
Market Value of a share of Common Stock shall be the closing price for such stock as quoted on the
NASDAQ (or the exchange with the greatest volume of trading in the


 









 






Common Stock) on the last market trading day with reported sales prior to the date of
determination. In the case where the Company is not listed on an established stock exchange or
national market system, Fair Market Value shall be determined by the Board in good faith in
accordance with Code Section 409A and the applicable Treasury regulations.



2.19 “Fiscal Year” means a fiscal year of the Company.



2.20 “Full-Value Award Limitation” means an aggregate limit of fifty thousand (50,000)
Shares, which is the total number of Shares that may be granted to all Participants combined as
“full value awards,” which includes both Restricted Stock and Performance Units.



2.21 “Grant Date” means the date the Administrator approves the Award.



2.22 “Incentive Stock Option” means an Option to purchase Shares, which is designated as an
Incentive Stock Option and is intended to meet the requirements of Section 422 of the Code.



2.23 “Independent Director” means a Nonemployee Director who is (i) a “nonemployee
director” within the meaning of Section 16b-3 of the 1934 Act, (ii) “independent” as determined
under the applicable rules of the NASDAQ, and (iii) an “outside director” under Treasury Regulation
Section 1.162-27(e)(3), as any of these definitions may be modified or supplemented from time to
time.



2.24 “Misconduct” shall include commission of any act in competition with any activity of
the Company (or any Affiliate) or any act contrary or harmful to the interests of the Company (or
any Affiliate) as determined in good faith by the Administrator and shall include, without
limitation: (a) conviction of a felony or crime involving moral turpitude or dishonesty, (b)
violation of Company (or any Affiliate) policies, with or acting against the interests of the
Company (or any Affiliate), including employing or recruiting any present, former or future
employee of the Company (or any Affiliate), (c) misuse of any confidential, secret, privileged or
non-public information relating to the Company’s (or any Affiliate’s) business, or (d)
participating in a hostile takeover attempt of the Company or an Affiliate. The foregoing
definition shall not be deemed to be inclusive of all acts or omissions that the Company (or any
Affiliate) may consider as Misconduct for purposes of the Plan.



2.25 “NASDAQ” means The NASDAQ Stock Market, LLC.



2.26 “Nonemployee Director” means a Director who is not employed by the Company or an
Affiliate.



2.27 “Nonqualified Stock Option” means an option to purchase Shares that is not intended to
be an Incentive Stock Option.



2.28 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.



2.29 “Participant” means an Employee, Consultant or Nonemployee Director who has an
outstanding Award.




 









 




2.30 “Performance Goals” means the goal(s) (or combined goal(s)) determined by the
Administrator (in its discretion) to be applicable to a Participant with respect to an Award. As
determined by the Administrator, the Performance Goals applicable to an Award may provide for a
targeted level or levels of achievement, including without limitation goals tied to individual
objectives and/or the Company’s (or a business unit’s) return on assets, return on shareholders’
equity, efficiency ratio, earnings per share, net income, or other financial measures determined in
accordance with U.S. generally accepted accounting principles (“GAAP”), with or without adjustments
determined by the Administrator. The foregoing definition shall not be deemed to be inclusive of
all Performance Goals for purposes of this Plan. The Performance Goals may differ from Participant
to Participant and from Award to Award.



2.31 “Performance Units” means an Award granted to a Participant pursuant to Section 8 of
the Plan that entitles the Participant to receive a prescribed number of Shares, or the equivalent
value in cash, upon achievement of Performance Goals associated with such Award. The Participant’s
Award Agreement shall specify whether the Performance Units will be settled in Shares or cash.



2.32 “Period of Restriction” means the period during which Shares of Restricted Stock are
subject to restrictions that subject the Shares to a substantial risk of forfeiture. As provided
in Section 7, such restrictions may be based on the passage of time in which case the restrictions
may lapse over the Period of Restriction, the achievement of Performance Goals, or the occurrence
of other events as determined by the Administrator, in its discretion.



2.33 “Plan” means this IXYS Corporation 2008 Equity Incentive Plan, as set forth in this
instrument and as hereafter amended from time to time.



2.34 “Restricted Stock” means an Award granted to a Participant pursuant to Section 7. An
Award of Restricted Stock constitutes a transfer of ownership of Shares to a Participant from the
Company subject to restrictions against transferability, assignment, and hypothecation. Under the
terms of the Award, the restrictions against transferability are removed when the Participant has
met the specified vesting requirement. Vesting can be based on continued employment or service
over a stated service period, or on the attainment of specified Performance Goals. If employment
or service is terminated prior to vesting, the unvested restricted stock reverts back to the
Company.



2.35 “Rule 16b-3” means the rule so designated promulgated under Section 16 of the 1934
Act, and any future rule or regulation amending, supplementing or superseding such rule.



2.36 “SEC” means the U.S. Securities Exchange Commission.



2.37 “Section 16 Person” means a person who, with respect to the Shares, is subject to
Section 16 of the 1934 Act.



2.38 “Shares” means shares of common stock of the Company.



2.39 “Stock Appreciation Right” or “SAR” means an Award granted to a Participant
pursuant to Section 6. Upon exercise, a SAR gives a Participant a right to receive a payment in
cash, or the equivalent value in Shares, equal to the difference between the Fair Market Value of
the


 









 






Shares on the exercise date and the Exercise Price. Both the number of SARs and the Exercise Price
are determined on the Grant Date. For example, assume a Participant is granted 100 SARs at an
Exercise Price of $10 and the award agreement specifies that the SARs will be settled in Shares.
Also assume that the SARs are exercised when the underlying Shares have a Fair Market Value of $20
per Share. Upon exercise of the SAR, the Participant is entitled to receive 50 Shares
[(($20-$10)*100)/$20].



2.40 “Subsidiary” means any corporation, LLC or partnership (collectively referred to as
“Entities”) in an unbroken chain of Entities beginning with the Company if each of the Entities
other than the last Entity in the unbroken chain then owns fifty percent (50%) or more of the
total combined voting power in one of the other Entities in such chain.




SECTION 3

ADMINISTRATION



3.1 The Administrator. The Administrator, if not the Board of Directors, shall be
appointed by the Board of Directors from time to time. Grants of authority in a committee charter
shall be deemed appointment.



3.2 Authority of the Administrator. It shall be the duty of the Administrator to
administer the Plan in accordance with the Plan’s provisions and in accordance with Applicable Law.
The Administrator, if the Board of Directors or a Committee, shall have all powers and discretion
necessary or appropriate to administer the Plan and to control its operation, including, but not
limited to, the following: (a) which Employees, Consultants and Directors shall be granted Awards;
(b) the terms and conditions of the Awards at initial grant and any subsequent revisions or changes
to the terms and conditions of Awards, including, but not limited to, changes to, or removal of
restrictions on, outstanding Awards relating to vesting, Period of Restriction or exercisability
periods, (c) interpretation of the Plan, (d) adoption of rules for the administration,
interpretation and application of the Plan as are consistent therewith and (e) interpretation,
amendment or revocation of any such rules.



3.3 Decisions Binding. All determinations and decisions made by the Administrator shall be
final, conclusive and binding on all persons, and shall be given the maximum deference permitted by
Applicable Law.




SECTION 4

SHARES SUBJECT TO THE PLAN



4.1 Number of Shares. Subject to adjustment, as provided in Section 4.3, the total number
of Shares initially available for grant under the Plan shall be three million five hundred thousand
(3,500,000). In May 1999, IXYS approved the 1999 Equity Incentive Plan (the “1999 Plan”), under
which approximately six million four hundred thousand (6,400,000) Shares are currently available
for grant. The 1999 Plan expires in May 2009, upon which no further Shares may be granted pursuant
to awards under the 1999 Plan but Shares may continue to be issued under the 1999 Plan pursuant to
grants previously made. Prior to the expiration date of the 1999 Plan and upon shareholder
approval of the Plan, no more than 200,000 Shares shall be granted pursuant to any new awards under
the 1999 Plan. Shares granted under the Plan may be authorized but


 









 






unissued Shares or reacquired Shares bought on the market or otherwise. Awards settled in cash
shall not count against the limitation set forth in this Section 4.1.a



4.2 Reversion of Shares to the Plan. If any Award made under the Plan expires, or is
forfeited or cancelled, the Shares underlying such Awards shall become available for future Awards
under the Plan. In the case of a “net issuance “ of an Option, as described in Section 5.7.1, any
Shares that are not issued to the Participant upon exercise shall become available for future
Awards under the Plan. Similarly, any Shares underlying a SAR that are not issued to the
Participant upon exercise shall become available for future Awards under the Plan.



4.3 Adjustments in Awards and Authorized Shares. The number of Shares covered by the Plan,
each outstanding Award, and the per Share exercise price of each such Award, shall be
proportionately adjusted for any increase or decrease in the number of issued shares of common
stock resulting from a stock split, reverse stock split, recapitalization, spin-off, combination,
reclassification, the payment of a stock dividend on the common stock or any other increase or
decrease in the number of such Shares of common stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of the Company shall
not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be
made by the Administrator whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of Shares of stock of any
class, or securities convertible into Shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares of common stock
subject to an Option.



4.4 Legal Compliance. Shares shall not be issued pursuant to the making or exercise of an
Award unless the exercise of Options and rights and the issuance and delivery of Shares shall
comply with the Securities Act of 1933, as amended, the 1934 Act and other Applicable Law, and
shall be further subject to the approval of counsel for the Company with respect to such
compliance. Any Award made in violation hereof shall be null and void.



4.5 Investment Representations. As a condition to the exercise of an Option or other right,
the Company may require the person exercising such Option or right to represent and warrant at the
time of exercise that the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.




SECTION 5

STOCK OPTIONS




     The provisions of this Section 5 are applicable to Options granted to Employees, Consultants
and Nonemployee Directors. Such Participants shall also be eligible to receive other types of
Awards as set forth in the Plan.


5.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be
granted at any time and from time to time as determined by the Administrator in its discretion.
The Administrator may grant Incentive Stock Options, Nonqualified Stock Options, or a


 









 






combination thereof, and the Administrator, in its discretion and subject to Sections 4.1, shall
determine the number of Shares subject to each Option.



5.2 Award Agreement. Each Option shall be evidenced by an Award Agreement that shall
specify the Exercise Price, the expiration date of the Option, the number of Shares to which the
Option pertains, any conditions to exercise the Option, and such other terms and conditions as the
Administrator, in its discretion, shall determine. The Award Agreement shall also specify whether
the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option.



5.3 Exercise Price. The Administrator shall determine the Exercise Price for each Option
subject to the provisions of this Section 5.3.




     5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock Option, the per
Share exercise price shall not be less than one hundred percent (100%) of the Fair Market Value of
a Share on the Grant Date, as determined by the Administrator.



     5.3.2 Incentive Stock Options. The grant of Incentive Stock Options shall be subject
to the following limitations:



          (a) The Exercise Price of an Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date; provided, however, that if on the
Grant Date, the Employee (together with persons whose stock ownership is attributed to the Employee
pursuant to Section 424(d) of the Code) owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price
shall be not less than one hundred and ten percent (110%) of the Fair Market Value of a Share on
the Grant Date;




          (b) Incentive Stock Options may be granted only to persons who are, as of the Grant Date,
Employees of the Company or a Subsidiary, and may not be granted to Consultants or Nonemployee
Directors.




          (c) To the extent that the aggregate Fair Market Value of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by the Participant during any calendar
year (under all plans of the Company and any parent or Subsidiary) exceeds $100,000, the Options to
acquire Shares in excess of such amount shall be treated as Nonqualified Stock Options. For
purposes of this Section 5.3.2(c), Incentive Stock Options shall be taken into account in the order
in which they were granted. For purposes of this limitation, the Fair Market Value of the Shares
shall be determined as of the time the Option with respect to such Shares is granted; and




          (d) In the event of a Participant’s change of status from Employee to Consultant or
Nonemployee Director, an Incentive Stock Option held by the Participant shall cease to be treated
as an Incentive Stock Option and shall be treated for tax purposes as a Nonqualified Stock Option
three (3) months and one (1) day following such change of status.




     5.3.3 Substitute Options. Notwithstanding the provisions of Sections 5.3.1 and 5.3.2,
in the event that the Company or an Affiliate consummates a transaction described in Section 424(a)
of the Code (e.g., the acquisition of property or stock from an unrelated corporation),



 









 







persons who become Employees, Directors or Consultants on account of such transaction may be
granted Options in substitution for options granted by their former employer, and such Options may
be granted with an Exercise Price less than the Fair Market Value of a Share on the Grant Date;
provided, however, the grant of such substitute Option shall not constitute a “modification” as
defined in Code Section 424(h)(3) and the applicable Treasury regulations.


5.4 Exercise of Options. Options granted under the Plan shall be exercisable at such times
and be subject to such restrictions as set forth in the Award Agreement and conditions as the
Administrator shall determine in its discretion. Except as set forth in Section 9.1, in all cases
involving termination of Continuous Status as an Employee, Director or Consultant (including, but
not limited to, the reasons described in subsections (c), (d), (e) and (f) of Section 5.5.1), such
Option shall be exercisable only to the extent the Participant was entitled to exercise it at the
date of such termination.




5.5 Expiration of Options




     5.5.1 Expiration Dates. Unless otherwise specified in the Award Agreement, but in any
event no later than ten (10) years from the Grant Date, each Option shall terminate no later than
the first to occur of the following events:



          (a) Date in Award Agreement. The date for termination of the Option set forth in the
written Award Agreement;




          (b) Termination of Continuous Status as Employee, Director or Consultant. The last
day of the three (3)-month period following the date the Participant ceases his/her/its Continuous
Status as an Employee, Director or Consultant (other than termination for a reason described in
subsections (c), (d), (e), or (f) below).




          (c) Misconduct. In the event a Participant’s Continuous Status as an Employee,
Director or Consultant terminates because the Participant has performed an act of Misconduct as
determined by the Administrator, all unexercised Options held by such Participant shall expire five
(5) business days following Participant’s receipt of written notice from the Company of
Participant’s termination due to Misconduct; provided, however, that the Administrator may, in its
sole discretion, prior to the expiration of the five (5) day period, reinstate the Options by
giving written notice of such reinstatement to Participant. In the event of such reinstatement,
the Participant may exercise the Option only to such extent, for such time, and upon such terms and
conditions as if the Participant had ceased to be employed by or affiliated with the Company or a
Subsidiary upon the date of such termination for a reason other than Misconduct, disability or
death;




          (d) Disability. In the event that a Participant’s Continuous Status as an Employee,
Director or Consultant terminates as a result of the Participant’s Disability, the Participant may
exercise his or her Option at any time within twelve (12) months from the date of such termination
(but in no event later than the expiration of the term of such Option as set forth in the Award
Agreement). If, at the date of termination, the Participant is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of the Option shall revert to the
Plan. If, after termination, the Participant does not exercise his or her Option


 









 







within the time specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan;




          (e) Death. In the event of the death of a Participant, the Participant’s Option may
be exercised at any time within twelve (12) months following the date of death (but in no event
later than the expiration of the term of such Option as set forth in the Award Agreement), by the
Participant’s estate or by a person who acquired the right to exercise the Option by bequest or
inheritance. If, at the time of death, the Participant was not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of the Option shall immediately
revert to the Plan. If, after death, the Participant’s estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option within the time
specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to
the Plan; or




          (f) 10 Years from Grant. An Option shall expire no more than ten (10) years from the
Grant Date; provided, however, that if an Incentive Stock Option is granted to an Employee who,
together with persons whose stock ownership is attributed to the Employee pursuant to Section
424(d) of the Code, owns stock possessing more than 10% of the total combined voting power of all
classes of the stock of the Company or any of its Subsidiaries, such Incentive Stock Option may not
be exercised after the expiration of five (5) years from the Grant Date.




     5.5.2 Administrator Discretion. Notwithstanding the foregoing the Administrator may,
after an Option is granted, extend the exercise period that an Option is exercisable following a
Participant’s termination of Continuous Service (recognizing in some such circumstances the Options
would cease to be Incentive Stock Options); provided, however, in no event may any such extension
extend beyond the stated expiration date of the Option.


5.6 No “Re-Pricing” Without Shareholder Approval. Except as provided in Section 4.3, in no
event may the Administrator directly or indirectly reduce the exercise price of an Option after it
has been granted without the approval of a majority of the shareholders eligible to vote.



5.7 Exercise and Payment. Options shall be exercised by the Participant’s delivery of a
written notice of exercise to the Secretary of the Company (or its designee), setting forth the
number of Shares with respect to which the Option is to be exercised, accompanied by full payment
for the Shares and payment of any additional amount that the Administrator specifies is necessary
for the Company to pay any required withholding taxes in accordance with Section 11.




     5.7.1 Form of Consideration. Upon the exercise of any Option, the Exercise Price
shall be payable to the Company in full in cash or its equivalent. The Administrator, in its
discretion, also may permit the exercise of Options and same-day sale of related Shares, or
exercise by tendering previously acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the total Exercise Price, or by any other means which the Administrator, in
its discretion, determines to provide legal consideration for the Shares, and to be consistent with
the purposes of the Plan. The Administrator, in its discretion, may also permit a “net issuance”
of any Option, where the term “net issuance” means the issuance of a number of Shares (rounded down
to the nearest whole number of Shares) that is equivalent in value to the



 









 







difference between the fair market value of the underlying stock on the exercise date, less
the exercise price and minimum tax withholding. Such discretion may be exercised by the
Administrator either in the Award Agreement or at any other time.



     5.7.2 Delivery of Shares. As soon as practicable after receipt of a written
notification of exercise and full payment for the Shares purchased and taxes required to be
withheld, the Company shall deliver to the Participant (or the Participant’s designated broker),
Share certificates (which may be in book entry form) representing such Shares.



SECTION 6

STOCK APPRECIATION RIGHTS



6.1 Grant of SARs. Subject to the terms of the Plan, a SAR may be granted to Employees,
Consultants and Nonemployee Directors at any time and from time to time as shall be determined by
the Administrator.




     6.1.1 Number of Shares. The Administrator shall have complete discretion to determine
the number of SARs granted to any Participant.



     6.1.2 Exercise Price and Other Terms. The Administrator, subject to the provisions of
the Plan, shall have discretion to determine the terms and conditions of SARs granted under the
Plan, including whether upon exercise the SARs will be settled in Shares or cash, which must be
determined at the time of grant and set forth in the Award Agreement. However, the Exercise Price
of a SAR shall be not less than one hundred percent (100%) of the Fair Market Value of a Share on
the Grant Date.


6.2 Exercise of SARs. SARs granted under the Plan shall be exercisable at such times and
be subject to such restrictions as set forth in the Award Agreement and conditions as the
Administrator shall determine in its discretion.



6.3 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall
specify the Exercise Price, the term of the SAR, the conditions of exercise and such other terms
and conditions as the Administrator shall determine.



6.4 Expiration of SARs. A SAR granted under the Plan shall expire upon the date determined
by the Administrator in its discretion as set forth in the Award Agreement, or otherwise pursuant
to the provisions relating to the expiration of Options as set forth in Section 5.5.



6.5 No “Re-Pricing” Without Shareholder Approval. Except as provided in Section 4.3, in no
event may the Administrator directly or indirectly reduce the exercise price of a SAR after it has
been granted without the approval of a majority of the shareholders eligible to vote.



6.6 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be entitled to
receive (whichever is specified in the Award Agreement) from the Company either (a) a cash payment
in an amount equal to (x) the difference between the Fair Market Value of a Share on the date of
exercise and the SAR Exercise Price, multiplied by (y) the number of Shares with respect to which
the SAR is exercised, or (b) a number of Shares by dividing such cash amount


 









 






by the Fair Market Value of a Share on the exercise date. If the Administrator designates in the
Award Agreement that the SAR will be settled in cash, upon Participant’s exercise of the SAR the
Company shall make a cash payment to Participant as soon as reasonably practical.




SECTION 7

RESTRICTED STOCK



7.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the
Administrator, at any time and from time to time, may grant Shares of Restricted Stock to
Employees, Directors and Consultants in such amounts as the Administrator, in its discretion, shall
determine. However, the award of Restricted Stock under this Section 7 is subject to the
Full-Value Award Limitation, as described in Section 2.20. The Administrator shall determine the
number of Shares to be granted to each Participant and the purchase price, if any, to be paid by
the Participant for such Shares. At the discretion of the Administrator, such purchase price may
be paid by Participant with cash or through services rendered.



7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an
Award Agreement that shall specify the Period of Restriction, the number of Shares granted, and
such other terms and conditions as the Administrator, in its discretion, shall determine. Unless
the Administrator determines otherwise, Shares of Restricted Stock shall be held by the Company as
escrow agent until the restrictions on such Shares have lapsed.



7.3 Transferability. Except as provided in this Section 7, Shares of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until
expiration of the applicable Period of Restriction.



7.4 Other Restrictions. The Administrator, in its discretion, may impose such other
restrictions on Shares of Restricted Stock as it may deem advisable or appropriate, in accordance
with this Section 7.4, including, without limitation, provisions relating to expiration of
restrictions.




     7.4.1 General Restrictions. The Administrator may set restrictions based upon the
achievement of specific Performance Goals (Company-wide, business unit, or individual), or any
other basis determined by the Administrator in its discretion.



     7.4.2 Section 162(m) Performance Restrictions. For purposes of qualifying grants of
Restricted Stock as “performance-based compensation” under Section 162(m) of the Code, the
Administrator, in its discretion, may set restrictions based upon the achievement of Performance
Goals. The Performance Goals shall be set by the Administrator on or before the latest date
permissible to enable the Restricted Stock to qualify as “performance-based compensation” under
Section 162(m) of the Code. In granting Restricted Stock which is intended to qualify under
Section 162(m) of the Code, the Administrator shall follow any procedures determined by it from
time to time to be necessary or appropriate to ensure qualification of the Restricted Stock under
Section 162(m) of the Code (e.g., in determining the Performance Goals).



     7.4.3 Legend on Certificates. The Administrator, in its discretion, may place a
legend or legends on the certificates representing Restricted Stock to give appropriate notice of
such restrictions.



 









 




7.5 Removal of Restrictions. Except as otherwise provided in this Section 7, Shares of
Restricted Stock covered by each Restricted Stock grant made under the Plan shall be released from
escrow as soon as practicable after expiration of the Period of Restriction. After the restrictions
have lapsed, the Participant shall be entitled to have any legend or legends under Section 7.4.3
removed from his or her Share certificate, and the Shares shall be freely transferable by the
Participant, subject to Applicable Law.



7.6 Voting Rights. During the Period of Restriction, Participants holding Shares of
Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares,
unless otherwise provided in the Award Agreement.



7.7 Dividends and Other Distributions. During the Period of Restriction, Participants
holding Shares of Restricted Stock shall be entitled to receive all dividends and other
distributions paid with respect to such Shares unless otherwise provided in the Award Agreement.
If any such dividends or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted Stock with respect
to which they were paid.



7.8 Return of Restricted Stock to Company. On the date that any forfeiture event set forth
in the Award Agreement occurs, the Restricted Stock for which restrictions have not lapsed shall
revert to the Company and again shall become available for grant under the Plan. Such reverted
Restricted Stock shall credit the Full-Value Award Limitation.




SECTION 8

PERFORMANCE UNITS



8.1 Grant of Performance Units. Subject to the terms and conditions of the Plan,
Performance Units may be granted to Employees, Consultants and Nonemployee Directors at any time
and from time to time, as shall be determined by the Administrator in its discretion. However, the
award of Performance Units under this Section 8 is subject to the “Full-Value Award Limitation,” as
described in Section 2.20.




     8.1.1 Number of Units. The Administrator will have complete discretion in determining
the number of Performance Units granted to any Participant, subject to the limitations in Sections
4.1.



     8.1.2 Value of Performance Units. Each Performance Unit shall have a value equal to
the Fair Market Value of one Share.


8.2 Performance Goals and Other Terms. The Administrator will set Performance Goals or
other vesting provisions, including, without limitation, time-based vesting provisions, in its
discretion which, depending on the extent to which they are met, will determine the number
Performance Units that are converted into Shares or into the equivalent value of cash that shall be
paid to Participants. The time period during which the Performance Goals or other vesting
provisions must be met will be called the “Performance Period.” Each Award of Performance Units
will be evidenced by an Award Agreement that will specify the Performance Period, and such other
terms and conditions as the Administrator, in its discretion, will determine. The


 









 






Administrator may set Performance Goals based upon the achievement of Company-wide or Individual
Objectives or any other basis determined by the Administrator in its discretion.



8.3 Earning of Performance Units. After the applicable Performance Period has ended, the
holder of Performance Units will be entitled to receive a payment based on the number of
Performance Units earned by the Participant over the Performance Period, to be determined as a
function of the extent to which the corresponding Performance Goals or other vesting provisions
have been achieved.



8.4 Form and Timing of Payment of Performance Units. Each Award Agreement of Performance
Units shall specify the form of payment, which may be in the form of Shares or in cash. Payment
with respect to earned Performance Units shall be made as soon as reasonably practical (an in no
event more than two and one-half months) after the expiration of the Performance Period.



8.5 Cancellation of Performance Units. On the date that any forfeiture event set forth in
the Award Agreement occurs, all unearned or unvested Performance Units will revert to the Company,
and again will be available for grant under the Plan. Such reverted Performance Units shall credit
the Full-Value Award Limitation.




SECTION 9

MISCELLANEOUS



9.1 Change In Control. Unless otherwise provided in the Award Agreement, in the event of a
Change in Control, unless an Award is assumed or substituted by the successor corporation, then (i)
such Awards shall become fully exercisable during the ten (10) day period immediately prior to the
Change in Control, whether or not otherwise then exercisable and (ii) all restrictions and
conditions on any Award then outstanding shall lapse as of the date of the Change in Control.
Unless an Award is assumed or substituted by the successor corporation, such Award shall terminate
and shall no longer be exercisable immediately upon the Change in Control, Participant shall be
provided written notification of whether Options granted under the Plan will be assumed,
substituted or shall become fully exercisable no later than ten (10) days prior to the Change in
Control date.



9.2 Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of
the Company, the Administrator shall notify each Participant as soon as practicable prior to the
effective date of such proposed transaction. Notwithstanding anything to the contrary contained in
this Plan or in any Award Agreement, the Participant shall have the right to exercise his or her
Award for a period of not less than ten (10) days immediately prior to such dissolution or
transaction as to all of the Shares covered thereby, including Shares as to which the Award would
not otherwise be exercisable.



9.3 No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or an Affiliate to terminate any Participant’s employment or
service at any time, with or without cause. Unless otherwise provided by written contract,
employment or service with the Company or any of its Affiliates is on an at-will basis only.
Additionally, the Plan shall not confer upon any Director any right with respect to continuation


 









 






of service as a Director or nomination to serve as a Director, nor shall it interfere in any way
with any rights which such Director or the Company may have to terminate his or her directorship at
any time.



9.4 Participation. No Employee, Consultant or Nonemployee Director shall have the right to
be selected to receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.



9.5 Limitations on Awards. No Participant shall be granted an Award or Awards in excess of
five hundred thousand (500,000) Shares in any Fiscal Year in which the combined number of Shares
underlying such Award(s) exceeds five hundred thousand (500,000) Shares; provided, however, that
such limitation shall be adjusted proportionately in connection with any change in the Company’s
capitalization as described in Section 4.3.



9.6 Successors. All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation or, otherwise, sale
or disposition of all or substantially all of the business or assets of the Company.



9.7 Beneficiary Designations. If permitted by the Administrator, a Participant under the
Plan may name a beneficiary or beneficiaries to whom any vested but unpaid Award shall be paid in
the event of the Participant’s death. Each such designation shall revoke all prior designations by
the Participant and shall be effective only if given in a form and manner acceptable to the
Administrator. In the absence of any such designation, any vested benefits remaining unpaid at the
Participant’s death shall be paid to the Participant’s estate and, subject to the terms of the Plan
and of the applicable Award Agreement, any unexercised vested Award may be exercised by the
administrator or executor of the Participant’s estate.



9.8 Limited Transferability of Awards. No Award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution. All rights with respect to an Award granted to a Participant
shall be available during his or her lifetime only to the Participant. Notwithstanding the
foregoing, the Participant may, in a manner specified by the Administrator, (a) transfer a
Nonqualified Stock Option to a Participant’s spouse, former spouse or dependent pursuant to a
court-approved domestic relations order which relates to the provision of child support, alimony
payments or marital property rights and (b) transfer a Nonqualified Stock Option or Restricted
Stock by bona fide gift and not for any consideration to (i) a member or members of the
Participant’s immediate family, (ii) a trust established for the exclusive benefit of the
Participant and/or member(s) of the Participant’s immediate family, (iii) a partnership, limited
liability company of other entity whose only partners or members are the Participant and/or
member(s) of the Participant’s immediate family or (iv) a foundation in which the Participant an/or
member(s) of the Participant’s immediate family control the management of the foundation’s assets.



9.9 Restrictions on Share Transferability. The Administrator may impose such restrictions
on any Shares acquired pursuant to the exercise of an Award as it may deem advisable, including,
but not limited to, restrictions related to applicable federal securities laws, the


 









 






requirements of any national securities exchange or system upon which Shares are then listed or
traded or any blue sky or state securities laws.



9.10 Transfers Upon a Change in Control. In the sole and absolute discretion of the
Administrator, an Award Agreement may provide that in the event of certain Change in Control
events, which may include any or all of the Change in Control events described in Section 2.8,
Shares obtained pursuant to this Plan shall be subject to certain rights and obligations, which
include but are not limited to the following: (i) the obligation to vote all such Shares in favor
of such Change in Control transaction, whether by vote at a meeting of the Company’s shareholders
or by written consent of such shareholders; (ii) the obligation to sell or exchange all such Shares
and all rights to acquire Shares, under this Plan pursuant to the terms and conditions of such
Change in Control transaction; (iii) the right to transfer less than all but not all of such Shares
pursuant to the terms and conditions of such Change in Control transaction, and (iv) the obligation
to execute all documents and take any other action reasonably requested by the Company to
facilitate the consummation of such Change in Control transaction.



9.11 Performance-Based Awards. Each agreement for the grant of Performance Units or other
performance-based awards shall specify the number of Shares or Units underlying the Award, the
Performance Period and the Performance Goals (each as defined below), and each agreement for the
grant of any other award that the Program Administrators determine to make subject to a Performance
Goal similarly shall specify the applicable number of shares of Common Stock, the period for
measuring performance and the Performance Goal. As used herein, “Performance Goals” means
performance goals specified in the agreement for a Performance Unit Award, or for any other Award
which the Program Administrators determine to make subject to Performance Goals, upon which the
vesting or settlement of such award is conditioned and “Performance Period” means the period of
time specified in an agreement over which Performance Units, or another Award which the Program
Administrators determine to make subject to a Performance Goal, are to be earned. Each agreement
for a performance-based Award shall specify in respect of a Performance Goal the minimum level of
performance below which no payment will be made, shall describe the method of determining the
amount of any payment to be made if performance is at or above the minimum acceptable level, but
falls short of full achievement of the Performance Goal, and shall specify the maximum percentage
payout under the agreement.




     9.11.1 Performance Goals for Covered Employees. The Performance Goals for Performance
Units and any other performance-based award granted to a Covered Employee, if deemed appropriate by
the Program Administrators, shall be objective and shall otherwise meet the requirements of Section
162(m)(4)(C) of the Code, and shall be based upon one or more of the following performance-based
business criteria, either on a business unit or Company-specific basis or in comparison with peer
group performance: revenue, operating income, operating cash flows, return on net assets, return on
assets, return on equity, return on capital, asset turnover, total stockholder return, net income,
pre-tax income, gross margin, profit margin, net income margin, cash flow, book value, earnings per
share, earnings growth, EBIT, EBITDA. Achievement of any such Performance Goal shall be measured
over a period of years not to exceed ten (10) as specified by the Program Administrators in the
agreement for the performance-based Award. No business criterion other than those named above in
this Section 9.11.2 may be used in establishing the Performance Goal for an award to a Covered
Employee



 









 







under this Section 9.11. For each such award relating to a Covered Employee, the Program
Administrators shall establish the targeted level or levels of performance for each such business
criterion. The Program Administrators may, in their discretion, reduce the amount of a payout
otherwise to be made in connection with an award under this Section 9.11, but may not exercise
discretion to increase such amount, and the Program Administrators may consider other performance
criteria in exercising such discretion. All determinations by the Program Administrators as to the
achievement of Performance Goals under this Section 9.12 shall be made in writing. The Program
Administrators may not delegate any responsibility under this Section 9.12. As used herein,
“Covered Employee” shall mean, with respect to any grant of an award, an executive of the Company
or any Subsidiary who is a member of the executive compensation group under the Company’s
compensation practices (not necessarily an executive officer) whom the Program Administrators deem
may be or become a covered employee as defined in Section 162(m)(3) of the Code for any year that
such award may result in remuneration over $1 million which would not be deductible under Section
162(m) of the Code but for the provisions of the Program and any other “qualified performance-based
compensation” plan (as defined under Section 162(m) of the Code) of the Company; provided, however,
that the Program Administrators may determine that a Plan Participant has ceased to be a Covered
Employee prior to the settlement of any award.



     9.11.2 Mandatory Deferral of Income. The Program Administrators, in their sole
discretion, may require that one or more award agreements contain provisions which provide that, in
the event Section 162(m) of the Code, or any successor provision relating to excessive employee
remuneration, would operate to disallow a deduction by the Company with respect to all or part of
any award under the Program, a Plan Participant’s receipt of the benefit relating to such award
that would not be deductible by the Company shall be deferred until the next succeeding year or
years in which the Plan Participant’s remuneration does not exceed the limit set forth in such
provisions of the Code; provided, however, that such deferral does not violate Code Section 409A.



SECTION 10

AMENDMENT, SUSPENSION, AND TERMINATION



10.1 Amendment, Suspension, or Termination. Except as provided in Section 10.2, the Board,
in its sole discretion, may amend, suspend or terminate the Plan, or any part thereof, at any time
and for any reason. The amendment, suspension or termination of the Plan shall not, without the
consent of the Participant, alter or impair any rights or obligations under any Award theretofore
granted to such Participant. No Award may be granted during any period of suspension or after
termination of the Plan.



10.2 No Amendment without Shareholder Approval. The Company shall obtain shareholder
approval of any material Plan amendment (including but not limited to any provision to reduce the
exercise or purchase price of any outstanding Options or other Awards after the Grant Date (other
than for adjustments made pursuant Section 4.3), or to cancel and re-grant Options or other rights
at a lower exercise price), to the extent required to comply with the rules of the NASDAQ, the
Exchange Act, Section 422 of the Code, or other Applicable Law.




 









 




10.3 Plan Effective Date and Duration of Awards . The Plan shall be effective as of the
Plan Adoption Date subject to the shareholders of the Company approving the Plan by the required
vote), subject to Sections 10.1 and 10.2 (regarding the Board’s right to amend or terminate the
Plan), and shall remain in effect thereafter. If the shareholders of the Company do not approve
the Plan by the required vote within twelve months of the Plan Adoption Date, all Awards granted
under this Plan, and this Plan in its entirety, shall immediately terminate. However, without
further shareholder approval, no Award may be granted under the Plan more than ten (10) years after
the Plan Adoption Date.




SECTION 11

TAX WITHHOLDING



11.1 Withholding Requirements. Prior to the delivery of any Shares or cash pursuant to an
Award (or exercise thereof) or the release of Shares from escrow arrangements or removal of
legends, the Company shall have the power and the right to deduct or withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local
taxes (including the Participant’s FICA obligation) required to be withheld with respect to such
Award (or exercise thereof).



11.2 Withholding Arrangements. The Administrator, in its discretion and pursuant to such
procedures as it may specify from time to time, may permit a Participant to satisfy such tax
withholding obligation, in whole or in part by (a) electing to have the Company withhold otherwise
deliverable Shares or (b) delivering to the Company already-owned Shares having a Fair Market Value
equal to the minimum amount required to be withheld. The amount of the withholding requirement
shall be deemed to include any amount which the Administrator agrees may be withheld at the time
the election is made; provided, however, in the case Shares are withheld by the Company to satisfy
the tax withholding that would otherwise by issued to the Participant, the amount of such tax
withholding shall be determined by applying the statutory minimum federal, state or local income
tax rates applicable to the Participant with respect to the Award on the date that the amount of
tax to be withheld is to be determined. The Fair Market Value of the Shares to be withheld or
delivered shall be determined as of the date taxes are required to be withheld.




SECTION 12

LEGAL CONSTRUCTION



12.1 Liability of Company. The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be
necessary to the lawful grant or any Award or the issuance and sale of any Shares hereunder, shall
relieve the Company, its officers, Directors and Employees of any liability in respect of the
failure to grant such Award or to issue or sell such Shares as to which such requisite authority
shall not have been obtained.



12.2 Grants Exceeding Allotted Shares. If the Shares covered by an Award exceed, as of the
date of grant, the number of Shares, which may be issued under the Plan without additional
shareholder approval, such Award shall be void with respect to such excess Shares, unless


 









 






shareholder approval of an amendment sufficiently increasing the number of Shares subject to the
Plan is timely obtained.



12.3 Gender and Number. Except where otherwise indicated by the context, any masculine
term used herein also shall include the feminine; the plural shall include the singular and the
singular shall include the plural.



12.4 Severability. In the event any provision of the Plan shall be held illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision had not been
included.



12.5 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan
shall be subject to all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.



12.6 Governing Law. The Plan and all Award Agreements shall be construed in accordance
with and governed by the laws of the State of California.



12.7 Captions. Captions are provided herein for convenience only, and shall not serve as a
basis for interpretation or construction of the Plan.